HSBC 2012 Annual Report Download - page 426

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
9 – Tax / 10 – Dividends
424
Brazil
The net deferred tax asset relating to HSBC’s operations in Brazil was US$0.9bn (2011: US$0.7bn). The deferred tax
assets included in this total arose primarily in relation to deductible temporary differences in respect of loan
impairment allowances. Deductions for loan impairments for Brazilian tax purposes generally occur in periods
subsequent to those in which they are recognised for accounting purposes and, as a result, the amount of the
associated deferred tax assets move in line with the impairment allowance balance.
Loan impairment deductions are recognised for tax purposes typically within 24 months of accounting recognition.
On the evidence available, including historic levels of profitability, management projections of income and the state
of the Brazilian economy, it is anticipated that there will be sufficient taxable income generated by the business to
realise these assets when deductible for tax purposes.
There were no material carried forward tax losses or tax credits recognised within the Group’s deferred tax assets in
Brazil.
Mexico
The net deferred tax asset relating to HSBC’s operations in Mexico was US$0.6bn (2011: US$0.5bn). The deferred
tax assets included in this total related primarily to deductible temporary differences in respect of accounting
provisions for impaired loans, including losses realised on sales of impaired loans. The annual deduction for loan
impairments is capped under Mexican legislation at 2.5% of the average qualifying loan portfolio. The balance is
carried forward to future years without expiry but with the annual deduction subject to the 2.5% cap.
On the evidence available, including historic and projected levels of loan portfolio growth, loan impairment rates
and profitability, it is anticipated that the business will realise these assets within the next 15 years. The projections
assume that loan impairment rates will remain at levels consistently below the annual 2.5% cap over the medium
term.
There were no material carried forward tax losses or tax credits recognised within the Group’s deferred tax assets in
Mexico.
UK
The net deferred tax asset relating to HSBC’s operations in the UK was US$0.3bn (2011: liability US$0.2bn). The
deferred tax assets included in this total relate primarily to the carry forward of tax losses.
On the evidence available, including historical levels of profitability and management projections of future income it
is anticipated that there will be sufficient taxable income generated by the business to recover the deferred tax asset
over the next 12 months.
Unrecognised deferred tax
The amount of temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised
in the balance sheet was US$16.6bn (2011: US$14.7bn). These amounts included unused state losses arising in our
US operations of US$12.6bn (2011: US$12.5bn).
Of the total amounts unrecognised, US$3.9bn (2011: US$2.4bn) had no expiry date, US$0.3bn (2011: US$0.1bn)
was scheduled to expire within 10 years (2011: 10 years) and the remaining will expire after 10 years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where remittance or
other realisation is not probable, and for those associates and interests in joint ventures where it has been determined
that no additional tax will arise. No amount is disclosed for the unrecognised deferred tax or the 2012 and 2011
temporary differences associated with such investments as it is impracticable to determine the amount of income
taxes that would be payable when any temporary differences reverse. Deferred tax of US$0.3bn (2011: US$0.2bn)
has, however, been provided in respect of distributable reserves of associates that, on distribution, would attract
withholding tax.